Mozambique Yields at Record as IMF Warns of Debt Distress

  • Public debt stock at 86% of GDP after loan disclosure
  • Economic growth to slow to 4.5% this year from 6.6% in 2015

Mozambique government bond yields jumped to a record 18.94 percent after the International Monetary Fund warned the southeastern African nation’s public debt was at a high risk of distress.

The Washington-based lender said Friday Mozambique’s public debt stock had jumped to 86 percent of gross domestic product after the government revealed it had guaranteed $1.4 billion in loans to state-owned companies.

“According to our technical assessment, public debt is now likely to have reached a high risk of distress,” the IMF said Friday after a nine-day mission to the coal-producing country.

The yield on Mozambique’s $727 million Eurobond due January 2023 added as much as 99 basis points to a record 18.94 percent on Monday, before paring gains to 18.53 percent by 1:42 p.m. in the capital, Maputo.

The IMF demanded an international and independent audit of three state-owned entities, including Proindicus and the Mozambique Asset Management, two companies whose debt the government failed to disclose to investors when arranging to convert another corporate loan into sovereign credit.

Macroeconomic Stability

While drought in southern Africa and falling commodity prices had slashed the economy’s export earnings and dried up foreign-exchange supply, the government was ready to implement measures agreed on with the IMF to restore macroeconomic stability, the Economy and Finance Ministry said in a statement over the weekend.

“The government intends to implement economic measures aimed, on the one hand, at restoration of macroeconomic stability and, secondly, to ensure that the economy continues to follow its growth trajectory within the current national and international situation,” according to the e-mailed statement.

The IMF projected economic growth would slow to 4.5 percent this year after expanding 6.6 percent in 2015. The metical has weakened 23 percent this year against the dollar, the second-worst performing currency in Africa after the Nigerian naira. The inflation rate rose to 18.27 percent in May, compelling the central bank to raise its benchmark rate for a third time this year.

The IMF said substantial fiscal and monetary tightening and exchange rate flexibility were needed to reduce pressure on inflation and the balance of payments.

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